The focus of this blog is on the wonders of government-run health-care everywhere but I also note the damage done to private medicine by a legal system that supports predatory litigation.

The long-established socialized medicine systems in Britain and Australia are a particularly relevant warning about where such systems end up.

Posts by John J. Ray (M.A.; Ph.D.)

Tuesday, January 26, 2010

Faux health reform

Regulations will jack up costs and the number of uninsured

Democrats are in turmoil. In the wake of last week's Republican Senate victory in liberal Massachusetts, there's no agreement about what to do with the government health care bill. A dazed Speaker Nancy Pelosi admitted she didn't have the votes to pass it in the House, but House Majority Leader Steny Hoyer and Senate Majority Whip Dick Durbin still seem determined to ram it through.

President Obama and some other Democrats are putting out sounders about scaled-down health regulations. Striking his new populist pose, Mr. Obama told ABC News, "We know that we need insurance reform, that the health insurance companies are taking advantage of people." The problem with the president's anti-business stance is that if enacted into law, it will destroy private health insurance.

You don't have to take our word for it. Liberals like New York Times columnist Paul Krugman are warning about the president's suggestion. Regarding the regulation to forbid insurance companies from taking into account preexisting health conditions, Mr. Krugman wrote, "healthy people [will] choose to go uninsured until they get sick, leading to a poor risk pool, leading to high premiums, leading even more healthy people dropping out." In other words, proposed regulations would produce more uninsured Americans and higher insurance costs.

To illustrate how bad this idea is, imagine if motorists could buy automobile insurance right after an accident and then were allowed to drop it once the car was fixed. Without revenue from regular premiums, insurance companies couldn't cover all the claims and would go under.

In the current Senate bill, people who didn't buy insurance would be fined on an escalating scale that would start at $200 in 2014 and peak at $750 by 2017. In 2008, the average price of an insurance policy was $4,704 for individuals and $12,682 for a family of four. It's not hard to see how quickly private insurance companies would go bankrupt with those numbers.

Some Republicans are tempted to support this faux reform. If they do, they will share the blame with Democrats for the impending insurance collapse.

Democrats look different these days. They look thinner. Last week, they lost their sixtieth vote in the Senate to Massachusetts Senator-elect Scott Brown. But Brown’s victory is only the latest bruise. Three weeks ago, North Dakota Senator Byron Dorgan and Connecticut Senator Chris Dodd announced their retirements. And last month, Alabama Congressman Parker Griffith switched parties.

True, more Republicans are planning to retire from Congress than Democrats—for now. But conservative Democrats who voted for Obamacare look pale for some reason. Maybe they’re sweating the fact that in Rasmussen Reports’ exit polls from last week’s election, 56 percent of voters said that health care was the most important factor in their decisions, and 51 percent opposed the Democrats’ plan—in Massachusetts.

Democrats’ troubles stem from their handling of health care, an issue on which their arrogance is patent. The Democrats’ proposal arrogates to themselves control of a sixth of our economy. They demand that insurers disregard preexisting conditions but that insurers distinguish between the sick and the healthy because the former are more expensive. If insurers cannot charge different prices, they’ll charge the healthy more to cover the difference. And if plans prove too pricey, the healthy will drop them, sucking money from the pool and raising premiums for the sick. So Democrats want everyone to buy coverage or face a fine, yet the fine they’ve prescribed is too low to deter dropouts. A higher fine, they fear, would provoke outrage.

On top of this morass, Democrats assert that their plan, which subsidizes about 30 million people so that they can afford coverage, will lower the deficit. Fears of higher taxes and bigger deficits, they sneer, are unfounded. Their reasoning? The Congressional Budget Office (CBO) says so. But they raise taxes to pay for the subsidies—a surcharge on the rich in the House of Representatives, a tax on “Cadillac plans” in the Senate—taxes that could have gone exclusively to reducing the deficit. And the CBO warns that the deficit will lessen only if Congress cuts billions from Medicare. Yeah right.

Yet Democrats scoff at critics. Republicans, they say, offer criticism but no solutions. What about Arizona Congressman John Shadegg’s proposal to allow people to buy insurance across state lines? Or Wisconsin Congressman Paul Ryan’s offer to tax employer-provided insurance and provide tax credits for individual coverage? Or Arizona Senator John McCain’s push for caps on exorbitant lawsuits against medical malpractice? Or former Massachusetts Governor Mitt Romney’s suggestion that states lift their mandates on insurers that force them to cover particular services—like in vitro fertilization?

“Please, Republicans are tools of Big Business,” they counter. Really? Pharmaceutical Research and Manufacturers of America (PhRMA) authorized its lobbyists to spend $150 million on television commercials in support of President Barack Obama’s plan. Democrats had to bribe Louisiana Senator Mary Landrieu and Nebraska Senator Ben Nelson with millions of dollars in funding to their states for their votes. And President Obama had to break his pledge to broadcast negotiations on C-SPAN, because the more people learn about his plan, the more they dislike it.

After these candidates flopped, Democrats patronizingly blamed their misfortunes on voters’ “anger.” “People are angry, and they’re frustrated,” Obama told George Stephanpoulos, “not just because of what’s happened in the last year or two years, but what’s happened over the last eight years.” This tactic smells stale. In 1994, Peter Jennings, then-host of ABC Nightly News, said voters threw a “temper tantrum” after Republicans won control of Congress. And Time magazine declared on its cover that Newt Gingrich had “perfected the politics of anger.” Democrats dismiss disagreement as mere emotion.

So here’s my plea for humility. President Obama should drop his plans for health care and focus on the economy, which remains Americans’ main concern. Democrats have spent months trying to fool people into believing that expanding government is fiscally responsible and have failed. The current floundering is only trying people’s patience.

Most damning is their attempt to pooh-pooh their defeats as the result of voter anger against incumbents. People have legitimate objections to Obamacare, and no amount of spin can change that. For Democrats to try, they make themselves look ridiculous—and desperate.

As the Massachusetts blame game unfolds, the president’s unpopular health bill leads the list. But the substantive provisions of the bill were just part of the problem. Perhaps more important, voters were appalled by how the deal unfolded.

Consider the pre-election giveaway to the labor unions. Negotiators agreed to exempt union contracts until 2018 from the tax on so-called Cadillac health-insurance plans. That backroom bargain not only outraged the voters, it also violated the Fifth Amendment to the Constitution, requiring the federal government to extend equal protection of the laws to all U.S. persons. Of course, not all voters understood the constitutional nuances, but they sensed that something was very wrong; and they reacted.

For the record, here's the constitutional framework: If government were to discriminate against a specially protected class (racial, religious, or by nationality), its laws would be rigorously scrutinized by the courts. So too if government infringed on a "fundamental" right (such as speech, press, religion). But enrollees in non-union Cadillac health plans are not a specially protected class, and the right to an untaxed Cadillac plan is not deemed fundamental. That means the tax would be reviewed by the courts under a more relaxed standard. Essentially, courts would give great deference to the legislature, which could do pretty much anything that's reasonable. Rarely would a court override the judgment of our elected representatives. But “rarely” is not the same as “never.” Congress may not classify groups for differential treatment based on a criterion that bears no plausible relationship to the asserted goals of the legislation. The justification for discriminatory regulation must be legitimate – not simply a payoff to get the bill passed.

Yes, tax legislation often discriminates among parties. But discriminatory taxes are typically tied to social costs (e.g., cigarette taxes offset public expenditures for smoking-related illnesses), or regulatory objectives (e.g., alcohol taxes discourage excessive liquor consumption), or reciprocal benefits (e.g., gasoline excises pay for highways), or income redistribution (e.g., taxes on Cadillac health plans subsidize policies for the uninsured). By contrast, the tax on non-union plans was tied to none of those. Non-union plans do not impose higher social costs than union plans. There are no regulatory reasons that would justify unequal taxes. No benefits are extended to enrollees in non-union plans that are denied to enrollees in union plans. Nor is income redistribution from non-union to union workers a rational goal of health care reform.

Pure and simple, the tax on Cadillac plans was designed to generate revenue for Obamacare. That goal might have been reasonable; but the revenue could just as well have been generated by taxing all such plans or even selecting plans at random. Singling out non-union plans was merely a sop to the unions – a naked bribe to buy their support. Paradoxically, the bribe would make it tougher to raise sufficient revenue. Indeed, the Obama-union pact produced a $59 billion reduction in estimated tax receipts over ten years. And “bending the health care cost curve,” which might justify taxing Cadillac plans, did not justify taxing only non-union Cadillac plans.

Behind the scenes, the dispute over Cadillac plans threatened to drive a wedge between the White House and its union supporters, who played a major role in Obama’s 2008 campaign. The internecine warfare was so intense that AFL-CIO president Richard Trumka tipped off his Democratic friends they might not get union support in the upcoming election. One union even warned it would no longer endorse the health bill. So, unless Congress revised the tax on Cadillac plans, the President’s top legislative priority might be jeopardized and unions might sit on the sidelines while Republicans recapture the House.

This sordid episode, piled on top of Sen. Ben Nelson’s special Medicaid exemption for Nebraska, bred more voter cynicism about a political process that had gotten out of hand. A few men and women, behind closed doors, negotiating in secret, kowtowed to politically connected special interests. The losers weren’t represented at the bargaining table. Predictably, they were left holding the bag – penalized for not having a union-sponsored medical plan. As the health bill evolved, its victims couldn’t see or identify the negotiating parties, couldn’t hear the negotiations, and couldn’t protest their victimization. Take it for granted, they were told, that one political party would promote the welfare of all Americans. It just wasn’t so.

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Background

Postings from Brisbane, Australia by John Ray (M.A.; Ph.D.) -- former member of the Australia-Soviet Friendship Society, former anarcho-capitalist and former member of the British Conservative party.

This blog gives a lot of attention to events in Australia and Britain -- places where there already exist systems similar to the one most likely to befall the USA if the Democrats get their way -- "Free" medical care supposedly available to all through government hospitals but with a competing private sector as well. The Canadian system is considered too Soviet to provide a likely model for the USA

TERMINOLOGY: Many of my posts concern the very instructive state of socialized medicine in Australia. Like the USA, Germany and India, Australia has a system of State governments which have substantial independence from the central (Federal) government and it is they who are mainly responsible for "free" health services. It may therefore be useful to some for me to note the standard abbreviations for the States concerned: QLD (Queensland), NSW (New South Wales), WA (Western Australia), VIC (Victoria), TAS (Tasmania), SA (South Australia).

For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

Conservatives do NOT object to helping the poor. Government welfare legislation in aid of the poor was in fact first introduced by conservatives -- Bismarck and Disraeli in the 19th century. What conservatives want is for the help to be delivered in a sane manner. And anyone who thinks that government bureaucracies can run hospitals well is completely out of touch with reality.

One of the oldest "free" public hospital systems in the world is that in the Australian State where I live: Queensland. It dates from 1944 (Britain's NHS began in 1948). So its advanced state of decay reveals well where the slow cancer of bureaucracy ends up. It now has three "administrative" employees for every medical employee. All those clerks are really good at curing people, I guess! Frequent bulletins on the flailing but ineffectual attempts to "fix" the system will appear here -- as well as bulletins on the dreadful things it does to patients and the long waits they endure.

On all my blogs, I express my view of what is important primarily by the readings that I select for posting. I do however on occasions add personal comments in italicized form at the beginning of an article.

I am rather pleased to report that I am a lifelong conservative. Out of intellectual curiosity, I did in my youth join organizations from right across the political spectrum so I am certainly not closed-minded and am very familiar with the full spectrum of political thinking. Nonetheless, I did not have to undergo the lurch from Left to Right that so many people undergo. At age 13 I used my pocket-money to subscribe to the "Reader's Digest" -- the main conservative organ available in small town Australia of the 1950s. I have learnt much since but am pleased and amused to note that history has since confirmed most of what I thought at that early age.

I imagine that the the RD is still sending mailouts to my 1950s address!

NOTE: The archives provided by blogspot below are rather inconvenient. They break each month up into small bits. If you want to scan whole months at a time, the backup archives will suit better. See here or here